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Elizabeth Levine

Where should I put my money that I am saving for my child's college education?

If you are saving for your child's college education and there's a chance that you will be applying for any kind of federal financial aid when your child heads to college, (loans, scholarships, grants…etc.), keep on reading.

Many parents I speak with, as was also my impression when my children were growing up, feel that the money they put away for college should be put into their child's name. Unless these funds are deposited into a 529 account/plan, which is a plan that is operated by the state, putting money into your child's name can actually be detrimental to the amount of funds the federal government will provide to you.

In order to get any kind of federal or even college specific financial aid the student/parent needs to complete the FAFSA form, the federal government financial aid form. There is a lot of information that needs to be completed and a complex calculation that goes into assessing what a parent/student can pay towards a year of college. There is one piece of the calculation that relates to what we are speaking about here:

+ 20% of a child's assets may be counted towards aid calculations, meaning how much that child can apply towards one year of their college costs

+ 5.64% of a parents assets may be counted towards aid calculations, meaning how much a parent can apply towards one year of their child's college costs

+ When there is money put into a 529 account though, that money is counted as a parental asset at 5.64% vs. a child's asset at 20%

As an example, if you have $50,000 put into your child's name, the government says $10,000 of it can be applied to pay for 1 year of college. If it is in the parents name only $2,820 can be applied.

The financial aid calculation has many factors that feed into the result but being aware of how you can best manage your funds to gain the best possible outcome can make the difference in not only how much money you can receive but what kind of aid as well.